Tag: fed contributor

Remember that classic episode from the very first season of Seinfeld, when Jerry wants to "break up" with his obnoxious friend, Joel Horneck, but just can't bring himself to do it? Jerry can't stand the guy, but the thought of actually telling Joel he doesn't want to see him anymore is just so painful that even after he gets up enough nerve and delivers the blow over lunch at the diner – after which Joel, not unexpectedly, starts to blubber and carry on in public – Jerry immediately backs off and apologizes, further prolonging his agony.

I thought of that episode (I usually think in terms of old sitcom episodes, much to my wife's annoyance) after I read the Federal Reserve's policy statement on Wednesday. It once again chose to kick the can down the road (I really hate that metaphor, but it does apply here) and put off raising interest rates until sometime into the unknown future. Apparently the Fed just can't bear the thought of having the financial markets pull a Joel Horneck on it.

Not only did the Fed not remove the "considerable time" language from its statement, as many market participants were expecting. Instead, it added a brand new noncommittal phrase, saying that "it can be patient" before it begins to "normalize the stance of monetary policy," i.e., raise interest rates from its current zero to 0.25% target range.

Of course, both being "patient" and "considerable time" can mean anything, or nothing, at all. What they absolutely don't mean is "right now" or "very soon." At her news conference following the statement, Fed Chair Janet Yellen said a rate increase won't take place for "at least the next couple of meetings," meaning well into next year, and maybe not even then. Who knows?

Perhaps Mrs. Yellen and the six of her colleagues on the Federal Open Market Committee who voted for the statement (there were an unusually high three members who didn't go along) thought they were being cute in adding another set of evasive, ambiguous words that show that it still can't make up its collective mind.

Mario Draghi may have cried wolf one too many times.

I've watched with amazement over the past couple of years as the European Central Bank president has gotten more mileage from saying what he intends or plans to do in the future – without actually having to do it – yet nearly always gets the financial markets to do what he wants them to do.

But, it looks like he ran out of luck on Thursday when he announced at his regular press conference after the ECB's monthly meeting that the bank was going to put off until "early next year" any new measures to try to stimulate the moribund Eurozone economy.

Not surprisingly, the euro surged, sovereign bond yields rose and stock prices plummeted after Draghi’s disappointing remarks. The euro jumped over a penny, or more than 1%, against the dollar while yields on Italian and Spanish 10-year government bonds rose about four basis points. In recent weeks, yields on Eurozone sovereign bonds have dropped to their lowest levels on record on speculation that the ECB would soon start buying up those bonds, as well as those of other countries.

Before the meeting, it had been widely expected that Draghi would announce the ECB will start buying government, and possibly corporate bonds too, to try to boost inflation in the zone. So far it has bought covered bonds and other asset-backed securities, with little in the way of economic improvement to show for it. Indeed, at the ECB's previous meeting in early November, Draghi said the bank would take further steps to increase its balance sheet in order to boost the currency zone's economy, which many took to mean government bond purchases were next on the agenda. Continue reading "Mr. Draghi Fails To Deliver"→